Here’s How to Keep a Late Divorce From Ruining Retirement

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Editor's Note: This story originally appeared on NewRetirement.

“Gray divorce” — divorce after 50 — can really cramp your retirement lifestyle.

When you say “I do,” your personal finances may not be the first thing on your mind. But the truth is, couples who get married and stay married have benefits that single people simply don’t, such as being able to split up expenses, favorable tax treatment, and having two (or more) sources of income.

Divorce Rates for Older Americans Have Doubled and Tripled

Couple getting a divorce
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Baby boomers have always been known for breaking down stereotypes, and one of those may be the traditional constraints of marriage.

According to data from the U.S. Census Bureau, divorce rates for people over 50 have doubled since 1990. And, the news is worse for those over 65, whose divorce rates have tripled.

Worse yet, without the financial advantages of being married, unmarried baby boomers are nearly five times more likely to be living in poverty.

16 Tips and Considerations for Gray Divorce

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There is a lot to think about when it comes to divorce after 50 with retirement looming. Here are 16 considerations:

1. Be prepared for some economic hardship

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“Individuals who go through gray divorce are considerably economically disadvantaged, and they are a growing demographic group,” says Susan Brown a sociologist at Bowling Green State University.

Compared with married folks, those who fall prey to the “gray divorce” may have a tougher time when it comes to leaving the workforce and living comfortably in their golden years.

Couples have it made when it comes to financial advantages. With more than one source of income and the ability to split expenses, financial burdens can be more easily met by couples than by single people. Additionally, there are tax advantages, as well as Social Security incentives for married couples.

Single people, on the other hand, have to carry the full burden of mortgages, rents, living expenses, and insurance by themselves.

“Social Security was designed during an era when most elders were married, a scenario that is less common today and is likely to be even less typical in the future,” the study reads. “In fact, the decline in marriage is linked to reduced spouse and widow benefit eligibility for Social Security among women.”

Single people, especially those who are closer to retirement, could see their resources depleted more quickly. This trend is particularly concerning around the time when adults need their resources most: during retirement.

Hardest for women:

The economic disadvantages are the most burdensome for women who are either divorced or never married. However, those who are widowed later in life are the most advantaged singles, according to the Bowling Green study.

2. Embrace your new life

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Divorce may be heart-wrenching, but you are probably headed for one of the happiest periods of your life!

Research from Age Wave and Merrill Lynch found that, of all periods in our life, we are happiest and most content between the ages of 65 and 74.

And, experts from Princeton University and the London School of Economics and Political Sciences found that happiness peaks at the ages of 23 and 69.

Whoa! Sixty-nine! That is older than many of us. And, even if you have surpassed 69, there’s still lots of happiness to be had — happiness does not generally drop off a cliff!

3. Know what you have to split

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It is not uncommon for one half of a couple to be more financially informed than the other. If you are the one with less knowledge, now is the time to get your hands around your full financial picture.

You might want to start with getting a full credit report for both you and your spouse and looking at tax returns. And, NOLO has a guide for how to find hidden assets in divorce discovery.

4. Expect a 50/50 split

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Most couples divorcing after 50 were in long-term marriages. Therefore, it is likely that a 50/50 split of assets is in order and alimony will likely be paid.

And, debt is not exempt from being split. In the states with community property laws, you are responsible for half of your spouse’s debt even if it isn’t in your name.

5. Consider working with a financial planner during the divorce

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Working with a financial planner and being prepared for unexpected financial bumps can also protect wealth and potentially lead to less loss after an upset. And, there are a few considerations that you may not want to navigate on your own, including:

QDRO: Retirement plans, such as 401(k)s or tax-free pensions, require a “qualified domestic relations order” or QDRO to determine how they’re divided, to protect the couple from major tax implications. A retirement planner can advise about the best time to get a QDRO, which is usually sooner rather than later. For example, if one spouse dies before the order is obtained, the other spouse could lose money that he or she had planned on having.

Questions About the Home: For some couples, selling, and dividing the profit might be the best course of action. But if one spouse wants to keep the home, it could provide some retirement financial security. An adviser can help clear the murky water around that decision.

Settlements: You probably want your financial adviser to review any settlements before they are set in stone. A good adviser could improve the details and help you avoid pitfalls that impact the rest of your life.

6. Understand what happens with your retirement accounts in divorce

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Assuming you do not have a prenuptial agreement, your divorce is subject to the rules of the state where you live. In general, the rules aspire to a fair distribution of your assets. In some states (community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), assets that were acquired during the marriage will be divided equally if the parties do not come to their own agreement.

Your homes and your 401(k) may be particularly contentious in a divorce since they are usually a couple’s most valuable assets.

According to the 401(k) Help Center, there are four common ways of dealing with a 401(k) and other retirement accounts in a divorce:

1. Comparable value: In this case, you might keep the 401(k) and your spouse would take something of comparable value.

2. Split the account: If you intend to split the money in the 401(k), it can be complicated due to distribution rules and other regulations related to 401(k)s. To split the money in the account, you need a special court order — a Qualified Domestic Relations Order (QDRO).

3. Liquidate the account: You can cash out the account, but this is not usually the best option due to distribution rules.

4. Rollover: Rolling over all or part of the account if you are not working at the company that started the 401(k).

7. Go easy on yourself

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It can be hard to teach an old dog new tricks, so go easy on yourself in this process.

Breaking up is hard to do — no matter your age. But, it might be even harder in your 50s and beyond when routines and preferences are entrenched.

Take good care of yourself during this time period, meet with friends, and stay active.

8. Start your own retirement planning as soon as possible

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Whether you are working with a financial adviser or not, taking your own stock of what you have as a newly single person and projecting forward can be very empowering. Even if you are behind financially, it can help a lot to know what you need.

It is important, as soon as you even start to think about divorce after 50, to create your own retirement plan as a single person. Document what you have now and what you want to be spending in the future and see where you stand. Then, begin to tweak your plans — retire later or move to a less expensive community — to create a secure future for yourself.

The NewRetirement Retirement Planner makes this process easy, and you are guaranteed to feel better with a plan.

9. Think through your Social Security strategy

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If you are divorced, but your marriage lasted 10 years or longer, you can receive benefits on your ex-spouse’s record (even if they have remarried) if:

  • You have not remarried.
  • You are age 62 or older.
  • Your ex-spouse is entitled to Social Security retirement or disability benefits.

Assuming you have your ex-spouse’s Social Security number, the Social Security Administration can help you figure out whether the spousal benefits or your own Social Security benefits will give you the biggest paycheck.

10. Consider tax implications

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Almost all financial decisions have tax implications. For example:

  • If receiving alimony, should you take a monthly check or a lump sum? (And, know that you will not be paying taxes on this income.)
  • If paying alimony, it is no longer tax-deductible.
  • Selling your home can incur a big tax bill.
  • Splitting investment accounts can mean selling, triggering tax consequences.
  • If distributing different accounts, will you have a bigger lifetime tax bill with the brokerage account or the retirement plan?

Again, a financial adviser can be useful in figuring out tax issues for a gray divorce.

11. Be sure to update estate plans and beneficiary designations

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It is not just your current and retirement financial situation that need to be sorted out. You will also want to be sure that your estate plans and beneficiary designations are updated.

12. Remember to account for supporting adult children

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Support for minor children is always part of a divorce settlement. However, you may want to also document who will be responsible for helping to support adult children.

13. Rethink long-term care plans

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Many couples plan to rely on each other for long-term care. That obviously is not usually going to work after a divorce.

Consider your long-term care options carefully. Think about what you desire for care and how you are going to pay for it. Here is a guide for planning for long-term care.

14. Be prepared for health insurance changes

senior woman shocked by bill
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Before Medicare eligibility at 65, you might be relying on your spouse for medical coverage.

After divorce, think through your options for insurance and out-of-pocket expenses carefully. You might find ideas in this article on nine creative ways to fund health costs before Medicare eligibility.

15. Planning on remarrying? Consider a prenup! /

Remarriages are more likely to end in divorce, so think about writing a prenuptial agreement for your next marriage.

In it, you can deal with a lot of these monetary issues. This is important since you are older, you have more assets to think of than in a first marriage and there may be adult children on both sides to consider.

16. More tips for retirement alone

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Being alone sounds scary to many people, and liberating to others.

Either way, here are 17 tips for being a solo senior!

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